Watsonville makes $4.6 million redevelopment payment under protest: City manager says more litigation possible in dispute with state

WATSONVILLE -- Watsonville is cutting a $4.6 million check to satisfy a state demand for payment of disputed redevelopment funds.

The cash, borrowed from the city's water fund, will go to the Santa Cruz County auditor-controller for disbursement to various local taxing entities.

The decision to make the payment came after a city loss in a state appeals court in late January.

"We are making the payment under protest, with a reservation of all rights to pursue further remedies," City Manager Carlos Palacios said in a news release Tuesday.

Palacios said city leaders are discussing a further appeal of the court's decision upholding the state's right to claim the money.

The dispute between the state and the city centered on the timing of a loan repayment between the now defunct Watsonville redevelopment agency and the city's general fund.

Palacios said the decision to hand over the money allows the city to file paperwork with the state for scheduling future payments on the $4.6 million loan and other smaller outstanding redevelopment debts to the city.

The deadline to file the paperwork without having to wait another six months is March 1.

The $4.6 million will be split among the city, county, Cabrillo College, Pajaro Valley Unified School District and the Pajaro Valley Public Cemetery District. The city expects to recover $800,000 to $1 million as its share.

Pajaro Valley Unified will get the largest share, though the exact amount wasn't immediately available Tuesday.

Chief Business Officer Brett McFadden said initially he thought any redevelopment money would offset state funding, resulting in no net gain for the district. But he said he's not an expert in redevelopment law so he's looking into hiring a consultant to review district entitlements.